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International Accounting Standards (IAS) 1: Presentation of Financial Statements
Which accounting standard presents the basis for the presentation of financial statements?
What information do financial statements present?
a) Assets
b) Liabilities
c) Equity
d) Income and Expenses, including gains and losses
e) Contributions by and distributions to owners
f) Cash Flows
Company's Management
Who is responsible for the financial statements?
What is the objective of IAS 1?
Ensure comparability through the basis for the presentation of the financial statements
What is the complete set and components of the financial statements?
a) Statement of Financial Position as at the end of the period
b) Statement of Comprehensive Income for the period
c) Statement of Changes in Equity for the period
d) Statement of Cash Flows for the period
e) Notes to the Financial Statements
Assets, Liabilities, and Equity
What elements of the financial statements are presented in the Statement of Financial Position?
Liquidity, Solvency, and Financial and Operational Flexibility
What information does a Statement of Financial Position provide that helps users in assessing the company?
Statement of Financial Position
Which financial statement does not present information during the reporting period?
Income and Expenses
What elements of the financial statements are presented in the Statement of Comprehensive Income?
Profitability
What information does a Statement of Comprehensive Income provide that helps users in assessing the company?
SPL — only profit and loss
SCI — profit, loss, and other comprehensive income
What is the difference between Statement of Profit and Loss and Statement of Comprehensive Income?
Equity, Contributions by and Distributions to Owners
What elements of the financial statements are presented in the Statement of Changes in Equity?
Inflows and Outflows of Cash and Cash Equivalents during the Reporting Period
What financial information does the Statement of Cash Flows present?
Solvency
What information does a Statement of Cash Flows provide that helps users in assessing the company?
a) Description of the basis of the presentation of financial statements
b) Summary of Significant Accounting Policies
c) Information required by the PFRS or IFRS not presented on the face of the financial statements
d) Additional information that will help the users better understand information presented (e.g. calculations behind the numbers)
What information does the Notes to the Financial Statements present?
What is the purpose of providing the same set of financial statements for the preceding years?
Comparability, intracomparability to be exact
International Accounting Standards (IAS) 1: Presentation of Financial Statements
Which accounting standard requires the inclusion of a statement of financial position as at the beginning of the preceding period whenever an entity restates its comparative prior period financial statements?
When is the restatement of a comparative prior period necessary?
When there is ANY of the following:
a) Change in accounting policy
b) Discovery of period errors
c) Reclassification of an element
Comparability and intracomparability
What is the purpose of restating the financial statements of the prior year and inclusion of a restated statement of financial position at the beginning of the preceding period?
International Accounting Standards (IAS) 8: Accounting Policies, Changes in Accounting Estimates and Errors
Which accounting standard defines accounting policies applied by an entity in preparing and presenting financial statements?
Philippine Financial Reporting Standards (PFRS) or Interpretation
If the management shall apply the standard or interpretation that specifically applies to a transaction, other event or condition, which standard should it be?
Judgment
The management should use what in developing and applying an accounting policy in the case that there is an absence of a Standard or an Interpretation that specifically applied to a transaction?
What is the hierarchy of sources used in developing and applying an accounting policy in absence of a Standard or Interpretation in a transaction?
a) the requirements in PFRS and IFRS dealing with similar and related issues
b) the definitions, recognition criteria, and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework
c) the most recent pronouncements of other standard setting bodies in the extent that these do not conflict with the sources enumerated above (optional)
How do you follow the hierarchy of the applicability of sources in developing and applying an accounting policy?
In descending order
What are the general features for the presentation of financial statements
1) Fair presentation and compliance with IFRS/PFRS
2) Going concern
3) Accrual basis of accounting
4) Materiality and aggregation
5) Offsetting
6) Frequency of reporting
7) Comparative information
8) Consistency of presentation
The application of IFRS with additional disclosures, when necessary, is presumed to result in?
Fair presentation
Fair presentation requires an entity to?
a) select accounting policies based on PAS/IAS 8, observing the hierarchy in formulating accounting policies
b) present information, including accounting policies, in a manner that provides relevant, reliable, comparable, and understandable information
c) provide additional disclosures when compliance with the specific requirements of the IFRS is insufficient to enable the users to understand the impact of a particular transaction, other event or condition on the entity's financial position and performance
What are Standards and Interpretations that are used in PAS 1 and adopted by the Financial Reporting Standards Council?
Philippine Financial Reporting Standards (PFRS)
What are comprised of the PFRS?
a) Philippine Financial Reporting Standards (PFRS)
b) Philippine Accounting Standards (PAS)
c) Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC), Standing Interpretations Committee (SIC), and the Philippine Interpretations Committee (PIC)
When does the management decide to depart from the IFRS?
When the management concludes that compliance with the requirements would make the financial information misleading
When a management departs and no regulatory framework prohibits the department, what disclosures should be made?
a) the management concludes that the financial statements are presented fairly
b) it has complied with applicable IFRS, except that it has departed from a particular requirement to achieve a fair presentation
c) the title of the IFRS that the departed from, the nature of the departure, treatment of said IFRS, the reason why the treatment is misleading and conflicting with the objective in the Conceptual Framework, and the treatment adopted from departing
d) for each period presented and the financial impact of the departure on each item
When a management departs but the regulatory framework prohibits the department, what disclosures should be made?
a) the title of the Standard or Interpretation in question, the nature of requirement, and reason in the conclusion that the requirement is misleading
b) for each period presented and the adjustments in each item
What is the assumption that the enterprise will continue operating in the foreseeable future?
Going Concern Assumption
When the financial statements are not prepared on a going concern basis, what disclosures should be made?
a) the fact that the financial statements are not prepared on a going concern basis
b) the basis on which the financial statements are prepared
c) the reason why the enterprise is not considered to be a going concern
What is the basis that recognizes transactions when they occur rather than when cash is received or paid?
Accrual basis of accounting
Where should the accrual basis of accounting apply in the components of the financial statements?
All financial statements except the Statement of Cash Flows
What are the expense recognition principles?
Direct matching — costs incurred and the earning of specific items of income
Systematic and rational allocation — costs incurred by systematically allocating the cost of asset acquired to periods of benefit
What recognition does the accrual basis of accounting and the expense recognition principles not allow?
Recognition of assets for costs which are not expected to provide probable future economic benefits to the enterprise
How should material items be presented?
Separately
How should immaterial items be presented?
Aggregated to a one-line item
What is the act of deducting an item to another item of different nature to present the net on the face of financial statements?
Offsetting
Is offsetting allowed or not?
Prohibited, unless required by a Standard or Interpretation
T or F: Offsetting isn't allowed in deferred tax assets and deferred tax liabilities
False, it is a requirement of IAS 12: Income Taxes
T or F: Offsetting is allowed in depreciation
False, as it is not considered as offsetting
T or F: Offsetting is allowed in presenting gain or loss on sale of equipment
True, referring to the net gain or loss from the historical cost and accumulated depreciation
When should financial statements be presented?
At least annually
Why should financial statements be presented at least anually?
Comparability, specifically intercomparability
What are the reasons behind the presentation of three statements of financial position?
When an enterprise makes a retrospective adjustment for any one or combination of the following:
a) change in accounting policy
b) correction of prior period error/s
c) reclassification or amendment of items in the financial statements
What are three statements of financial position to be presented when the enterprise makes retrospective adjustments in the financial statements?
SFP at:
a) the end of the current period
b) the end of the immediate prior period
c) the beginning of the preceding period
Why does the enterprise have to present three statements of financial positions when it makes retrospective adjustments?
Comparability, specifically intracomparability
When an entity reclassified comparative amounts, it shall disclose what?
a) the nature of the reclassification
b) the amount of each item or class of items that is reclassified
c) the reason for the reclassification
The presentation and classification of items in the financial statements should be the same from period to period unless why?
a) it is apparent, that following a significant change in the nature of the entity's operations or a review of its financial statements, that another presentation or classification would be more appropriate a change in presentation
b) an IFRS requires a change in presentation
What are the information presented in the identification/header of the financial statements?
a) the name of the reporting entity and other means of identification, and any change in that information from the preceding financial statement date
b) whether the financial statements cover the individual entity or a group of entities
c) the statement of financial position date or the period covered by the financial statements, whichever is appropriate to that component of the financial statements
d) the presentation currency
e) the level of rounding used in presenting amounts in the financial statements
T or F: It is enough to present "in Pesos" in the header of the financial statements
False, as there are multiple types of Pesos
Which financial statement is generally created first?
Statement of Comprehensive Income
How are the Statement of Comprehensive Income and the Statement of Changes in Equity related?
The profit or loss from the SCI gets transferred to the SCE
What are the equity accounts for sole proprietorships, partnerships, and corporations?
Sole Proprietorships & Partnerships — Capital
Corporations — Retained earnings or Accumulated Profits
How are the Statement of Changes in Equity and Statement of Financial Position related?
The ending equity account balances of the SCE appears in the SFP
How are the Statement of Cash Flows and Statement of Financial Position related?
The net balance on the SCF represents the net change in the cash and cash equivalents of the SCP, and brings the beginning balance to its ending balance
What cash flow activities affect non-current assets?
Investing cash flow activities
What cash flow activities arise from non-trade lenders and as well as owners of the entity?
Financing cash flow activities
What cash flow activities are involved in the determination of profit?
Operating cash flow activities
What is the financial statement typically created last as a result of all the other financial statements?
Statement of Financial Position
What are the limitations of the financial statements?
1) Real worth of the business is not reflected due to different measurement bases
2) Presents values that are a mixture of different levels of purchasing power (e.g. non-current operating assets purchases at different times)
3) Some financial statement elements are not recognized as they do not fit the recognition criteria of the Conceptual Framework
4) Moral, efficiency, strategic location, enterprise's contribution to the deterioration of the environment aren't reported as they do not fit in the definition of financial elements and have a high level of measurement uncertainty
What is the national regulatory agency that supervise corporations and its sector?
Securities and Exchange Commission (SEC)
What is the function of the SEC?
To regulate sale and registration of securities, and corporate and capital market toward good corporate governance, protection of investors, widest participation of ownership and democratization of wealth
Which republic act emphasizes the requirement for the submission of an annual report by companies certified by an independent certified public accountant?
Republic Act 8799, otherwise known as the Securities Regulation Code (SRC)
Which SRC rule provides general guides to financial statement preparation, responsibility to financial statements, qualifications and reports of independent auditors and review of their quality assurance processes?
SRC Rule 68
What are the classifications of reporting entities under SRC Rule 68?
a) large and/or publicly accountable entities
b) medium-sized entities
c) small entities
d) micro entities
What criteria does a reporting entity have to satisfy in order to be classified as a large and/or publicly accountable entity?
ANY of the following:
a) total assets are more than ₱350 million or total liabilities are more than ₱250 million
b) required to file financial statements under Part II of SRC Rule 68
c) in the process of filing their financial statements for the purpose of issuing any class of instruments in a public market
d) holders of secondary licenses issued by regulatory agencies
What criteria does a reporting entity have to satisfy in order to be classified as a medium-sized entity?
ALL of the following:
a) total assets are between ₱100 million and ₱350 million or total liabilities are between ₱100 million and ₱250 million
b) not required to file financial statements under Part II of SRC Rule 68
c) not in the process of filing their financial statements for the purpose of issuing any class of instruments in a public market
d) not holders of secondary licenses issued by regulatory agencies
What criteria does a reporting entity have to satisfy in order to be classified as a small entity?
ALL of the following:
a) total assets are between ₱3 million and ₱100 million or total liabilities are between ₱3 million and ₱100 million
b) not required to file financial statements under Part II of SRC Rule 68
c) not in the process of filing their financial statements for the purpose of issuing any class of instruments in a public market
d) not holders of secondary licenses issued by regulatory agencies
What criteria does a reporting entity have to satisfy in order to be classified as a micro entity?
ALL of the following:
a) total assets are less than ₱3 million or total liabilities are less than ₱3 million
b) not required to file financial statements under Part II of SRC Rule 68
c) not in the process of filing their financial statements for the purpose of issuing any class of instruments in a public market
d) not holders of secondary licenses issued by regulatory agencies
In the case that the total assets and total liabilities fall into different classifications of reporting entities, which shall be followed?
Either, whichever belongs to the higher qualification
What financial reporting framework shall a large and/or publicly accountable entity adopt?
Full PFRS/IFRS
What financial reporting framework shall a medium-sized entity adopt?
PFRS for Small and Medium-sized Entities (PFRS/IFRS for SMEs)
What financial reporting framework shall a small entity adopt?
PFRS for Small Entities
What financial reporting framework shall a micro entity adopt?
Income Tax Reporting
Who is responsible for the presentation of financial statements?
Management
Statement of Financial Position is a formal presentation of what?
Accounting Equation
Which accounting standard requires the presentation of assets and liabilities following the current and non-current classification?
Philippine Accounting Standard (PAS) 1
What are the criteria for an asset to be current?
As long as it satisfies ANY of the following:
a) expected to be realized in, or is intended for sale or consumption in the entity's normal operating cycle
b) held for the purpose of being traded
c) expected to be realized within twelve months after the reporting period
d) a cash or cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least twelve months from the end of the reporting period
When is an asset non-current?
When it doesn't meet any of the criteria for current assets
T or F: Cash realizable in 16 months from a manufacturing company's operating cycle is a non-current asset
False, as an asset realizable from an entity's operating cycle is still considered as a current asset
What are the criteria for a liability to be current?
As long as it satisfied ANY of the following:
a) expected to be settled in the entity's normal operating cycle
b) held for the purpose of being traded
c) due to be settled within twelve months after the reporting period
d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period
When is a liability non-current?
When it doesn't meet any of the criteria for current liabilities
T or F: If a liability is refinanced after the reporting period ends, it is current
True, as it becomes expected to be settled within the remaining time
How is the equity account of a sole proprietorship presented in the Statement of Financial Position?
Singularly, referring to the single account of the sole proprietor
How is the equity account of a partnership presented in the Statement of Financial Position?
Separately according to how many partners there are, summing up their capital and drawing accounts individually
How is the equity account of a corporation presented in the Statement of Financial Position?
As the shareholder's equity and according to source
What are the components of the shareholder's equity?
a) Contributed capital
b) Retained earnings
c) Cumulative other comprehensive income
Share capital is consisted of?
Preference shares and/or ordinary shares
What is contributed capital in excess of the legal capital of the corporation or additional contributed capital?
Share premium
Cumulative profits - Declared dividends = ?
Retained earnings
Which Statement of Financial Position emphasize the working capital of the firm?
Financial Position form
Which Statement of Financial Position form looks like a big T-account, where the assets are listed on the left and the liabilities and equity are on the right?
Account Form
Which Statement of Financial Position form is a continuous format of presenting all three elements, wherein liabilities are presented after the assets and the equity is presented after the liabilities
Report Form
Working capital = ?
Current assets - Current liabilities
In the Financial Reporting Form, equity is equal to?
Net assets (assets minus liabilities)
In the Account and Report Form, assets are equal to?
Total Liabilities and Equity